Tesla Stock and Musk’s $1 Trillion Robo Ransom—What to Know

On Thursday, shareholders will probably vote to award CEO Elon Musk an unprecedented $1 trillion incentive package. (Andrew Harnik/Getty Images)

If you’ve lost the plot to the long-running tech drama “Tesla,” I have show notes. You’ll want to get caught up ahead of next week’s twist—and by “twist,” I don’t mean a surprise but rather a wringing, in this case of a company by its shareholders. On Thursday, they’ll probably vote to award CEO Elon Musk an unprecedented $1 trillion incentive package. Or is it a robo ransom? Here’s what to know:

Tesla isn’t just a 23-year-old car maker whose production and profits peaked two years ago. It’s also, as it says, a “physical AI” company—an early contender in two artificial-intelligence businesses that are as theoretically massive as they are barely existent. The first is operating robotic taxis. The second is deploying humanoid helpers to homes and businesses. These account for almost none of Tesla’s current income, and most of its stock market value.

If it seems like the Tesla show has gone quiet recently, it’s because its star, Elon Musk, has stepped out of the Washington, D.C., spotlight. Last spring, he was head of the Department of Government Efficiency, which found heaps of taxpayer savings, or barely any, depending on whose accounting you use. But he was neglecting Tesla, investors complained, and his smashmouth move into anti-left politics had rankled some leaf lovers who buy electric vehicles.

It was a “code red situation,” wrote Wedbush Securities analyst Dan Ives, a Tesla super-bull, on April 20. “Tesla’s stock has been crushed” amid “potentially 15%-20% permanent demand destruction” due to “brand damage Musk has created with DOGE.” Tesla’s market value had been cut nearly by half in months, to $777 billion, below the ranks of the Magnificent Seven tech world-beaters. At the market’s No. 10 spot, Tesla was sandwiched humiliatingly between an Arkansas mass merchant known for price rollbacks and an Indiana maker of obesity shots, and was a few spots behind a Nebraska investment conglomerate with stakes in reinsurance, wood flooring, and peanut brittle.

Then, Musk left DOGE and got out of politics. Mostly. There was a summer spat where Musk tweeted that he got President Donald Trump re-elected, and in a now-deleted post, claimed vaguely and without evidence that the president was mentioned in unreleased Jeffrey Epstein “files.” Musk was upset by the president’s budget bill, which eliminated tax perks for electric-vehicle buyers. The episode passed, and so did the bill, yet Tesla’s market value has plumped back up to $1.5 trillion. It would already be back in the Mag 7 if not for Broadcom recently Kramering into the group. Business conditions for Tesla are…better? Maybe worse. It’s difficult to say. Third-quarter financial results were solid, but that was owed to an EV buying rush ahead of the September tax credit expiration. For October, JD Power predicts a 43% EV sales decline.

No matter. Tesla bulls and bears alike agree that car making today has little to do with the stock value. BofA Securities puts its contribution at 12%, plus another 17% for full self-driving, or FSD, a subscription service that for now provides “more active guidance and assisted driving under your active supervision.” Solar panels and related batteries account for 6% of Tesla’s value, BofA reckons. The rest comes from Robotaxis, 45%, and Optimus humanoid robots, 19%.

The bull case for Tesla, set forth recently by Rob Wertheimer at Melius Research, who initiated coverage in mid-October at Buy, is that Musk is masterful at moving fast, including into AI data centers, and Tesla’s expertise in “touching the physical world” separates it from other AI giants. It will “wreck multitrillion-dollar industries,” starting with cars. Valuation is “guesswork,” and Wertheimer’s guess is $520 a share, versus a recent $440.

The bear or neutral case is simply that it will be a long wait until the new businesses make money. FSD still isn’t working as intended, and as long as that’s the case, the Robotaxi business is likely to remain “in park,” writes William Stein at Truist Securities, who rates the stock at Hold. He assigns Tesla’s Robotaxi business a valuation of $172 billion, which he notes is only modestly below the market value of Uber, even though Uber, which partners with autonomous-driving companies including Waymo, is more active in robo-taxi service today. Stein values the stock at $406.

It’s possible to envision marvelous things for Tesla and still be ho-hum on the stock. BofA recently tweaked its model of cash flows out to 2040 to reflect, among other things, a 40% long-term U.S. market share for Optimus, up from a prior 30%, with a penetration rate of 40% for manufacturing, and 20% for households. Count me in. I plan to use my unit mostly for high fives, and ask only for an AI Mel Blanc voice option that recalls Twiki from the old Buck Rogers in the 25th Century series. But even with BofA’s ambitious market assumptions, it hiked its price target to a level that implies only 7% stock upside, and kept its rating at Neutral.

At Tesla’s annual meeting on Nov. 6, shareholders will vote on stock bonuses for Musk that would take his stake from 13% to 25% if he hits ambitious goals. These include taking Tesla’s market value over $8.5 trillion in a decade. For comparison, today’s market leader, Nvidia, is worth $5 trillion. There are also operational milestones, from robot deliveries to earnings levels.

The plan will pass. Betting markets say so, along with key investors. Ives at Wedbush says he has a better chance of starting for the Yankees than the measure failing. If you don’t follow New York sports, a Jets or Giants reference there would have left some ambiguity, but a Yankees one means that Musk will get his ransom. I mean performance plan.

Greater voting control is a deal breaker for Tesla’s robot future, Musk made clear on the company’s third-quarter earnings call. “If I go ahead and build this enormous robot army, can I just be ousted at some point in the future?” he asked. Without Musk and his robots, Tesla’s valuation could collapse to that of today’s cash-producing businesses—a catastrophic outcome. With Musk in place and chasing his record payday, grumpy valuation math can give way for now to open-ended optimism about Tesla’s robo future.

Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron’s Streetwise podcast.